Wondering how to calculate ERC credit? You’ve come to the right place!
At Northstar, we have experience helping our clients understand and maximize their employee retention credit (ERC).
To calculate the amount of your ERC credit, you’ll need to first identify your eligible wages. Eligible wages include qualified health plan expenses, such as payments for group health plans, and certain wages paid from March 13th, 2020 through December 31st, 2021.
But there’s more to it than that. Keep reading to learn more about how to calculate ERC credit.
Employee Retention Credit: What is It?
The Employee Retention Credit (ERC) is a tax credit available to eligible employers that have been retaining employees during the COVID-19 pandemic. The credit is a tax credit against employment taxes equal to 50% of qualified wages (up to $10,000 per employee) paid by an eligible employer to retain its employees.
The credit is available for wages paid after March 12, 2020 and before January 1, 2021. But there are some important details to take into consideration when calculating the ERC credit.
How to Calculate ERC Credit with PPP
The ERC is available to employers who receive a loan under the Paycheck Protection Program (PPP) if certain conditions are met. If an employer receives a PPP loan, the ERC may not be claimed for the same wages for which a PPP loan forgiveness amount is claimed.
To calculate the ERC credit with PPP, you must first determine your eligible wages. Eligible wages are defined as wages paid to employees for time that they are not providing services due to disruptions caused by the COVID-19 pandemic. For example, if an employee is furloughed or has reduced hours due to the pandemic, the wages paid for that time may be considered eligible wages.
Next, you must determine the amount of the credit. The credit is equal to 50% of eligible wages, up to a maximum of $10,000 per employee per year. So, if an eligible employer pays $20,000 in eligible wages to an employee, the maximum credit the employer can claim is $10,000.
Loving this post? Make sure to check out our other article about who qualifies for ERTC before you leave!
Employee Retention Credit 2023 Qualifications
To be eligible for the ERC in 2023, an employer must have experienced a full or partial suspension of operations during the calendar year 2022 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19.
Furthermore, the employer must also have a decline in gross receipts of more than 20% compared to the same quarter in the prior year. This means that if you experienced a full or partial suspension of operations due to government orders in 2022, and your gross receipts declined more than 20% compared to the same quarter in the prior year, you may be eligible for the ERC in 2023.
ERCs are claimed using Form 941, Employer’s Quarterly Federal Tax Return, and can be claimed for the quarter in which the employer has both a suspension of operations and a decline in gross receipts. The credit is claimed in the quarter it is earned and is claimed as a reduction of the employer’s employment tax liability for that quarter.
ERC Credit FAQ
Is there a worksheet of the employee retention credit?
There is no official worksheet for the ERC. However, employers can use the information provided in this article and on the IRS website to calculate the credit. Alternatively, employers can bring professional help to analyze the ERC they should receive.
What is an employee retention credit example?
An example of an employee retention credit would be an eligible employer who has experienced a full or partial suspension of operations and a decline in gross receipts of more than 20% compared to the same quarter in the prior year. The employer pays $20,000 in eligible wages to an employee. Then, the maximum credit the employer can claim is $10,000.
What documentation do I need for employee retention credit?
To claim the ERC, an employer must have documentation to support the claim, including records of the amounts and dates of wages paid, the period of time the employee was not providing services, and the order from the appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19.